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Elburn Company: Accounts Receivable

The ledger of Elburn Company at the end of the current year shows the following:
Accounts Receivable $110,000
Sales $840,000
Sales Returns and Allowances $28,000

Instructions
(a) If Elburn uses the direct write-off method to account for uncollected accounts, journalize the adjusting entry at December 31, assuming Elburn determines that Copp's $1,400 balance is uncollected.
(b) If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable.
(c) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.

Solution Preview

(a)
Allowance for Doubtful Accounts $1,400
Accounts Receivable $1,400
The direct write-off is a method of accounting for bad debts that records the loss from an uncollected account receivable at the time it is determined to be uncollected. Therefore, we need to debit the allowance for Doubtful Accounts and credit accounts receivable for the amount that is uncollected.

(b)
First, we need to find net sales by deducting sales returns and allowances from sales.
Sales $840,000
Less: Sales Returns and Allowance $28,000
Net Sales $812,000
Therefore, 1% of net sales = $812,000 x 0.01 = $8,120.
Bad Debts Expense ...

Solution Summary

This solution is comprised of a detailed explanation which provides a step by step response to highlight how to journalize the adjusting entry levels for the various costs that this company incurred over the year. This response is just under 400 words.

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